‘Rock solid’: Hostplus defends returns, despite criticism

Superannuation fund Hostplus has hit back at claims that its returns in the past financial year could be overstated, after the $87 billion industry fund topped the performance league table with a positive return – despite most investment markets going backwards.

While the returns of most other fund balanced investment options were negative, Hostplus’ balanced option produced a return of 1.6 per cent for the year to June 30.

Sam Sicilia, the chief investment officer of industry super fund giant Hostplus, says its published returns are accurateCredit:AFR

Hostplus is the main super fund for hospitality and tourism workers.

Sam Sicilia, the fund’s chief investment officer, told The Age and The Sydney Morning Herald he stands behind the numbers reported to the Australian Prudential Regulation Authority, and to the private sector researchers who publish the performance league tables, saying they are “rock solid”.

“There is no opportunity for the super fund to tamper with the valuation”, Sicilia says.

The positive return was a particularly good result, given the median-performing balanced option returned negative 3.3 per cent for the financial year.

Hostplus’ balanced option, where 85 per cent of the fund’s 1.5 million members have their retirement savings, was not only the top performer over the financial year, but also topped the league table over time periods going back 20 years.

The fund is actively managed and has a heavy investment weighting in unlisted infrastructure assets, such as airports and ports, and to property and private equity. They make up more than 40 per cent of the fund’s total investments.

The remainder is invested in listed equity markets, mostly Australian and overseas shares, which are valued each day. Unlisted investments, such as commercial property, infrastructure and private equity do not trade on exchanges and are periodically valued.

Big industry funds tend to be heavily invested in unlisted assets, and when listed markets fall, the values of these assets tend to hold up better. When markets rise, their values tend not to rise as much.

‘It’s the same as someone marking their own homework and then bragging about being top of the class.’

The tilts to unlisted assets are credited as one of the reasons that large industry funds have out outperformed their retail fund rivals over the longer term.

Unlisted assets benefit members through better diversification and smoothing of returns – alongside a return premium on illiquid assets – as investors expect to earn more from an investment that takes time to sell than for assets that are traded daily on an exchange.

However, Chris Brycki, founder of online fund manager Stockspot, says valuations of unlisted assets can be opaque because many funds ultimately control how and when these assets are valued.

“The analogy I have heard, and think is apt, is that it’s the same as someone marking their own homework and then bragging about being top of the class,” he says.

“That is why I think that some returns that super funds are now publishing are highly questionable.”

He says a potential solution would be for policymakers to require much more transparency from funds in how they value their unlisted assets, including methodology, frequency and who carries out the valuation.

Brycki says the valuations should be disclosed publicly, so that they can be better scrutinised.

Super funds often own unlisted assets through pooled investments run by external managers – who invest alongside other large investors – rather than hold the investments directly.

Sicilia says it is not Hostplus that carries out the valuations on its pooled unlisted investments, but the investment managers via which Hostplus invests. The managers contract certified or licensed valuers, who are experts in the type of asset being valued, he says.

Hostplus’ investment managers have major infrastructure assets valued at least once-a-year, and commercial and industrial property every three months. Their valuation reports are also audited, Sicilia says.

Mano Mohankumar, senior investment research manager at Chant West, says the frequency and timing of valuations vary between super funds. However, all assets are generally revalued at least once a year by qualified independent valuers, which are usually rotated from a panel of valuers every three years.

The valuations are supplemented periodically – typically quarterly – by external managers or, where the asset is directly held, by qualified internal teams with an understanding of the asset and the relevant market, he says.

“We are comfortable that funds are taking their fiduciary responsibilities seriously,” Mohankumar says.

Camille Schmidt, market insights manager at SuperRatings, says super funds need to ensure that their valuation policies and processes are fit for purpose within the regulatory framework. She says SuperRatings monitors valuation processes across the industry.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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